When a company faces such problem, the co-founders sort out the issue by mutually understanding each other, coming to a common conclusion or by agreeing on a common point put forward. But sometimes what happens is such a heated conflict or a dispute amongst co-founders lead to business litigation and a settlement that turns out to be not so lucrative for the withdrawing partner. It is always suggested to consult a good startup lawyer in India to settle the disputes between co-founders.
Litigation If Required
When a conflict or a dispute ultimately leads to a litigation, that’s when the call for a Lawyers need comes into play. What a lawyer provides a professional service to his clients in dispute is a real redressal for legal situation lockdown. A lawyer will give suggestions and advice which will prevent the co-founders from reaching a point of dispute and conflict or in other words chaos in the internal management. For example, a lawyer hired by founders of a company will make sure that the agreement (Memorandum of Association and Articles of Association) that is made to start-up a company, between the founders and other legal documents are scrutinised properly and legally bind the parties mentioned in the agreement.
Another simple way to avoid conflicts and disputes amongst co-founders is by having a Tie-Breaker Policy, where if two founders or creators of a company are at a conflicting situation, a third co-founder who is particularly effective, can take the final decision as long as politics remain on the sideline. The best startup advocates in India can draw up a Tie-breaker policy for your startup.
Clauses Which can Emphasise on stopping out dispute before it starts
Contribution and Ownership of Each Partner to the Firm
It is important to mention clearly the ownership pattern of each partner addressing the percentage and number of shares held individually. Depending upon the number of shares held, co-founders are assigned their voting rights which also if clearly mentioned could avert serious complications. In the case of Housing.com, the shareholding pattern with regard to the capital invested, the effort made by the partners was missing in the agreement. Also, no provision with regard to the vesting of shares was explicitly mentioned as such.
In the benefit of the Company’s interest, it is essential to lay down a mechanism to take the decisions smoothly in order move forward. The decision-making power should be shared depending upon the shareholding pattern of each co-founder, but the mere presence of such mechanism can avert many future disputes. In Housing.com dispute, with a total number of 12 co-founders, only two were given recognition by the Board. Since they lacked the majority on the board, the decisions making mechanism had taken a hit. Therefore, if it is made clear in the co-founders’ agreement the decision-making power vested in every individual, it would be hassle free for the management to take decisions.
Strong Dispute Resolution Mechanism
Even the above-mentioned clauses are taken care of with a strong Memorandum of Association in the backing; there are still chances of a Co-Founder dispute being raised. Therefore, there needs to be a strong and clear, predetermined mechanism for such dispute resolution which can resolve the issue quickly without causing any damage. For example , co-founders can decide to opt for mediation with a predetermined mediator to resolve any disagreement. Straight away taking the litigation path may hamper the company’s image thereby leading to losses. In the case of Housing.com, there was clearly no dispute resolution mechanism present, if any, therefore when the dispute escalated, the Co-Founder was left with no choice but to quit, twice. Mere difference in ideology, which can easily be resolved through mediation, witnessed 9 out of 12 co-founders exiting the company.
It’s Over Co-Founder Disputes
Loss of Trust : The partners at some point lose trust in one another.
Unfortunately, sometimes someone violated a partner’s trust or the relationship deteriorates to such an extent that the partnership is over . T his essentially means that your company is finished. You probably just partnered with the wrong person and that’s the end of it. Nothing can be done. Pick yourself up, take some time off, and get back in the saddle with the learnings you’ve gained from this experience.
Even if you're not currently having any problems with your partner, the best way to avoid them in the first place is to have frequent, regularly scheduled “off-sites.” This is a great way to examine where you are as a company and what you both could be doing better. These meetings establish a regular routine between the both of you that keeps the relationship well-oiled and builds and deepens trust, loyalty, and alignment over time. When big issues arise or the inevitable difference of opinion bubbles to the surface, you can talk through these in an atmosphere of respect and trust--knowing that you both have the best interests of the company and each other at heart.
Legistify connects you with the best lawyers in India and top Chartered Accountants in India with simple telephonic conversation or email. Call us at 011-33138123 or send us an email at firstname.lastname@example.org to get started.